The Bottom Line

Department of Transportation Secretary Anthony Foxx started the Highway Trust Fund clock yesterday, informing state transportation directors that disruptions in federal reimbursement of highway projects would begin on August 1. The cash management measures are intended to prevent outflows from depleting the Highway Trust Fund.

Starting August 1, the federal government would no longer reimburse states for projects immediately. Instead, they will distribute to states a proportionate share of available funds every two weeks when the fund receives incoming revenue. This is a major change from the current scenario of daily distributions. Of course, uncertainty will make it difficult for the state transportation departments to anticipate precisely how much they will be reimbursed and will lead states to delay some projects until there is a longer-term solution.

DOT considers $4 billion of funding the cut-off point for implementing cash management measures for the highway account. Their latest Highway Trust Fund ticker shows the account's fund running out by late August or early September, at which point spending could only be reimbursed with incoming revenue, enough to cover about three-fourths of spending.

In the context of a middling U.S. economic recovery, several commentators have argued that we should ignore deficit reduction in order to pursue growth-promoting policies. This debate, however, overlooks a critical point since both objectives can be achieved simultaneously. A recent report commissioned by the Peter G. Peterson Foundation, authored by economists Janice Eberly and Phillip Swagel, highlights just this point, that economic and fiscal health are not in conflict.

The Tax Policy Center and Urban Institute have issued a new report entitled "Flattening Tax Incentives for Retirement Saving." Authors Barbara Butrica, Benjamin Harris, Pamela Perun, and Eugene Steuerle examine three different options to change the tax treatment of 401(k)s and describe their effects on the annual income distribution of taxes along with the lifetime distribution of taxes and income.

The three options are:

Reduce the 401(k) combined employer/employee contribution limit from $51,000 to the lesser of $20,000 or 20 percent of income

Expand the saver's credit so middle-income earners can take greater advantage of it

Replace the income and payroll tax exclusions for 401(k) contributions with a 25 percent refundable credit

Our recent paper Trust or Bust: Fixing the Highway Trust Fund called on lawmakers to identify a long-term fix to the funding gap in the Highway Trust Fund (HTF). Unfortunately, it appears unlikely that there is sufficient time to enact a fix before funds fall too low and disrupt construction this summer. A short-term patch can be enacted by transferring funds from general government revenue. To be fiscally responsible, however, this transfer should be fully offset elsewhere in the budget.

Previously, we discussed long-term options to restore highway solvency by cutting spending, raising more from current highway taxes, and raising new taxes. Below are tax, spending, and other options that could pay for upfront general revenue transfers to shore up the HTF in the short-term, although they leave the HTF's chronic imbalance in place. These options can buy time, but they do not replace the need to identify a long-term solution to bring dedicated revenue and spending in line.

Options To Offset a Transfer of General Revenue

Policy

Ten-Year Savings

Trust Fund Extension

Dedicate one-time "deemed repatriation" tax to the HTF

$125 billion

8 years

Dedicate temporary transition revenue from repealing LIFO to the HTF

$90 billion

6 years

Repeal certain oil and gas tax preferences^

$35 billion

30 months

Eliminate tax exclusion for new private activity bonds

$30 billion

24 months

Require filers to have a SSN to file for a refundable child tax credit

Sources: CBO, OMB, JCT, and CRFB calculationsAll numbers are rounded and calculated by CRFB based on a variety of sources. *These discretionary changes would need to be accompanied by reductions in the discretionary spending caps.^Includes expensing for exploration and development as well as the “percentage depletion allowance”

The Obama Administration yesterday released the details of its request for war spending (Overseas Contingency Operations, or OCO), with a grand total of $66 billion of funding – $60 billion new funding in addition to $6 billion of State Department/international program funding already in the President's budget.

Continuing our series of transportation-focused blogs, this blog discusses the budgetary treatment of the Highway Trust Fund (HTF). While most of the attention regarding the HTF has focused on proposals to address the impending exhaustion of the HTF, the need to reauthorize highway programs by the end of September presents an opportunity to reform the budgetary treatment of spending from the HTF to provide greater transparency in highway spending.

As we approach the twin deadlines to reauthorize surface transportation spending and shore up the Highway Trust Fund (HTF), policymakers should note the importance of addressing the structural imbalance between highway spending and dedicated revenue.

Over the past few years, lawmakers have engaged in a series of budget showdowns trying to avoid fiscal speed bumps and reduce deficits. However, debt projections continue to show an unsustainable outlook, and there appears to be little appetite for the kind of deal that would be necessary to put it on a downward path as a percent of GDP. That's where you come in.

The Senate Finance Committee is beginning a markup of a short-term patch to the Highway Trust Fund, providing funding through the end of the year. Without additional funds, the Highway Trust Fund will run low this summer, disrupting funding for highway projects, and eventually run out of money entirely. If that happens, all revenue coming into the trust fund for 2015 will be used to pay for current projects, meaning no new projects would receive funding next year.

The Ways & Means Committee today marked up new and extended tax breaks costing more than $210 billion of lost revenue and increased outlays over the next decade, plus another $35 billion in interest payments.

CBO published its score of the Postal Reform Act of 2013 (H.R. 2748), a bill introduced by House Oversight Committee Chairman Darrell Issa (R-CA), on Monday. The bill would deliver net unified budget savings of $17 billion over the 2015-24 period, reflecting a $23.6 billion reduction in off-budget spending and a $6.6 billion increase in on-budget spending.

Jim Nussle, Co-Chair of the Committee for a Responsible Federal Budget, served as the Director of the Office of Management and Budget from 2007-2009. Prior to his time at OMB, Mr. Nussle represented the 1st District of Iowa in the U.S. House of Representatives for 16 years. He recently wrote an opinion featured in the CNN Opinion section. It is reposted here.

This morning at 10 a.m., the House Rules Subcommittee on Legislative and Budget Process will hold a hearing on the Biennial Budgeting and Enhanced Oversight Act (H.R. 1869), sponsored by Rep. Reid Ribble (R-WI). Maya MacGuineas, President of the Committee for a Responsible Federal Budget, will provide expert testimony.

We released a new paper, Trust or Bust: Fixing the Highway Trust Fund, which showed the Highway Trust Fund (HTF) faces a $170 billion shortfall over the next decade and provided numerous options to close that shortfall. In a previous blog, we explored options for doing that by increasing revenue from sources that are currently dedicated to the HTF.

Both the House and Senate have passed bills reforming the VA, and a conference committee must now meet to hammer out differences between the two bills. Yesterday, CRFB President Maya MacGuineas sent a letter to the 28 conferees, calling for the resulting bill to take a fiscally responsible approach and honor our nation's commitment to veterans without adding to the national debt.

One of the wonkier fiscal debates that arises from time to time concerns the accounting method used to measure the size of the budget deficit. This week, the U.S. Government Accountability Office (GAO) published an online primer that explains the different ways to measure the deficit and what these measures say about the government’s fiscal health.